Buying Real Estate in Buenos Aires with your Head..Not just your Heart

Different people have different reasons to purchase real estate in Argentina. Most of my clients aren’t buying to live in it. They are buying purely as an investment. Sure they might use the property once or twice per year for vacation but they won’t be spending the bulk of their time living in it.

The biggest mistake I have seen people make is buying a property based on them living in it. They typically buy something too big in a part of town that is difficult for rentals. 95% of the real estate I buy for myself and for my clients is as an investment. Because I am specializing in higher end rentors (businessmen/corporations, tourists that would typically stay in a 4 or 5 star hotel and cosmetic surgery patients, etc.), most of them want to be in a centralized, safer part of town like Recoleta or Palermo.

Many foreigners buy a property in a location based on where THEY would want to live vs. where a tourist would want to stay for a week or two. San Telmo is quaint but businessmen aren’t looking for “quaint”. San Telmo is an area frequently requested by people that are here for tango and students looking for a cheap apartment. It is not the best place to purchase if you are looking for cash flow. However, property prices there are lower and the capital appreciation in the future could be a consideration. Those are the type of considerations you must make when buying real estate as an investment.

People buying property only with their heart is one of the biggest mistakes I’ve seen as a real estate consultant. An amazing building in a great area that the investor loves doesn’t necessarily make a good investment. Buying a property because it has the details and features that YOU like, without examining the underlying economics, is a big mistake. On the other hand, you should not necessarily pass on a property because it is an ugly building or the amenities are lacking. A mistake made by many investors is looking at real estate as if it were to become their personal residence. An investment usually should not be viewed as the investor’s home.

It is fundamental to keep these things in mind when buying here. Most people just buy based on whether they like the apartment. There is so much more to consider than the actual property. The three most important things in real estate are (1) LOCATION, (2) LOCATION AND (3) LOCATION. That does not change in Buenos Aires.

Areas like Las Cañitas are trendy and cool but again those areas are routinely requested by a younger crowd that can’t afford a luxury apartment. I have consulted clients on the fact that those areas aren’t heavily requested areas for my target audience. Still, some opted not to listen to my advice. They liked that area and insisted on buying in that area. The outcome? Their apartments weren’t requested too often and they couldn’t charge the amounts they wanted to charge. They ended up selling their apartments to purchase in Recoleta or Palermo Soho where I originally advised them to purchase.

I predicted back in 2003/2004/2005 that Palermo Soho would be the “next big thing”. I was spot on target. Back then, there wasn’t much interest in the area by developers and most locals laughed at me when I told them that someday it would be more requested by tourists than even Recoleta. 7 years later, history has proven that I was exactly right. All the interviews I did many years ago, spelling out that Palermo Soho and the surrounding area would grow and develop was accurate.

Neighborhoods like Puerto Madero are extremely expensive. The area is all new construction which always is more expensive. Some property in Puerto Madero is going for u$s 6,000 per sq. meter (1 sq. meter = 10.76 sq. feet).

They have some amazing properties but the problem is that I find that Puerto Madero has no “soul”. It is undeveloped and there are mostly only hotels and restaurants there. There are no grocery stores, taxis are hard to find there and it feels like a ghost town more times than not. I would never live there.

I bought several properties in Puerto Madero after the crash in 2002 and 2003 while properties were very cheap there. But almost all of my investors have sold their properties for tremendous profits and bought in areas like Recoleta and Palermo where rental demand is stronger.

It is too far from places like Palermo. Also, it could be just any city in the USA. It looks the same as any other city. I prefer Recoleta and Palermo because it is very centralized. Everywhere is just a few minutes by taxi. Part of the charm for me of a neighborhood is the surrounding area. Puerto Madero indeed has a bright future and I am sure it will get developed with monster projects like the Faena Hotel and other projects going on.

There is no need to purchase a gigantic apartment as an investment. The other big mistake people make is they buy a property that is too big. Since property here is priced by the sq. meter, buying a bigger property means buying a more expensive property.

Personally, for myself and most of my clients, I’m not buying anything bigger than 85 sq. meters for the most part. There are exceptions to that rule but I found that buying a property between 70 and 85 sq. meters is perfect for a luxury rental. However, there is a real shortage of 2 and 3 bedroom properties in Buenos Aires so those properties are becoming more desireable.

Also, it is much more difficult these days to find the ideal apartment in the 70 sq. meter to 85 sq. meter size. Many locals and foreigners have scooped up properties in this range because they are more affordable. That is forcing many buyers to purchase larger properties.

The average size higher end hotel room is less than 30 sq. meters. Having an apartment that is 70 to 80 sq. meters is more than double the size of most upscale hotel rooms. Many clients tell me, “but Mike…this apartment is too small for me and my family to stay in”. I ask them how many times they have brought their entire family to Buenos Aires. The answer more times than not is “never”. Then I ask them how many times per year will they use the apartment. The answer is usually one time per year. If that is the scenario then it makes sense to just rent that one time per year and buy an apartment that will produce a solid revenue stream.

My rule of thumb that I consult my clients is if they will use the apartment at least 3 months out of the year or they plan on possibly retiring and living in the apartment they should buy with their heart. If they will use it less than 2 months out of the year they need to buy with their head.

What I help my clients do is stay on track and find the motivation for purchasing real estate here. I am not in this business for a fast buck. If money was the motivating factor in my life I would have stayed in the USA and made a lot of money. I came to Argentina to improve my lifestyle and be in a city that I love. I love assisting people with purchasing a property that will produce cash flow and tremendous capital appreciation.

I am to the point now of being able to work with only those clients that I deem are a good match for me and my company. I have turned down consulting clients because I didn’t think the client was a good match or felt they would be difficult to work with in the future. Life is truly too short to work with people that aren’t going to do things the right way. And not everyone is a good candidate to be investing in South America. In fact, more people are probably NOT suited to invest in South America.

I bought with my head and not my heart and it has paid off. I am getting unsolicited offers for my properties that are much higher than I paid for them. The high offers are not only because the underlying real estate is worth the price they are offering. They are making those offers because of the net income that the apartment rentals are spinning off.

Every apartment that I buy for myself and my consulting clients turns into a mini business. I compare it to owning a room in a hotel. You can use it whenever you want without paying a fee and yet you still make the income when it’s rented out. The “hotel” rents it out for you, takes care of paying your bills, dealing with guests, the upkeep on the property and you get the rental income every month.

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